Regulator Sanctions, New Rules Too Little Too Late?

Over the past few days, several sources including Financial Feed, The Washington Post and The Streethave reported that sanctions against some of the largest U.S. mortgage servicers are forthcoming, and with them “remedial requirements” designed to clean up the foreclosure process.

The reports are based on the testimony of John Walsh, Acting Comptroller of the Currency, before the U.S. Senate Committee on Banking, Housing and Urban Affairs last week, in which he stated:

In general, the examinations found critical deficiencies and shortcomings in foreclosure governance processes, foreclosure document preparation processes, and oversight and monitoring of third party law firms and vendors. These deficiencies have resulted in violations of state and local foreclosure laws, regulations, or rules and have had an adverse affect on the functioning of the mortgage markets and the U.S. economy as a whole. By emphasizing timeliness and cost efficiency over quality and accuracy, examined institutions fostered an operational environment that is not consistent with conducting foreclosure processes in a safe and sound manner.

But we won’t know for thirty days what “sanctions” will be applied or how the regulators involved will see fit to remediate the problems. It’s also not yet clear how the actions of federal regulators might impact or influence the outcome of those 50 state investigations currently in progress.

The testimony above was followed almost immediately with the qualification that most of the loans, despite irregularities and improper process, were seriously delinquent “and that servicers maintained documentation of ownership and had a perfected interest in the mortgage to support their legal standing to foreclose.”

In fact, the qualifications in the testimony were so significant that some are already seeing this as a victory for mortgage servicers. See, for example, Testimony in Senate Hearing Indicates Most Robo-Foreclosures Were Justified

Though we won’t know the details for weeks, it seems unlikely that this process will end in a way that provides real protections to borrowers or effectively punishes mortgage servicers.